Earlier this summer, San Bernadino County, an area east of Los Angeles hit hard by the mortgage crisis, considered a plan that could potentially help homeowners whose mortgage payments exceed the actual value of their property. The ostensibly simple idea, proposed by the California firm Mortgage Resolution Partners, would have the county purchase so-called underwater loans at market value using eminent domain, thus allowing homeowners to refinance and stay put, rather than face foreclosure.
MRP, which says the plan could be tailored according to the needs of local communities, would help local governments broker the deal for a fixed fee. San Bernadino has not moved forward with the plan, but their interest caught the attention of a number of cities and counties around the country, among them Chicago.
Alderman Ed Burke held a hearing at City Hall last week (which, as noted by local media, attracted the likes of John Cusack) to consider the idea.
“Renegotiation of underwater mortgages by the private sector has failed to keep pace with this epidemic,” Burke said in a statement. “Even with record low interest rates, many homeowners have found it difficult to refinance due to newly tightened lending standards and depressed home values.”
To be sure, Cook County could use a fresh injection of ideas, when it comes to the foreclosure crisis. According to the Woodstock Institute, one in four homes in Cook County is underwater. The crisis has hit black and Latino areas especially hard.
Without Mayor Rahm Emanuel’s approval, the idea is likely to be dead on arrival. "I don't think it's the right way to address the problem," Emanuel told reporters at an unrelated news conference. "I don't think it's (in) the power of the city to do, to deal with the housing issue.”
Chicago Alderman Roberto Maldonado, whose ward covers the Humboldt Park area, thinks using eminent domain could be an effective way of stabilizing home prices and avoiding foreclosured properties, which can remain vacant for years and blight a neighborhood. He joins Eight Forty-Eight on Monday to discuss eminent domain, along with Chicago magazine Deal Estate columnist Dennis Rodkin.
Northwestern University law professor David Dana will also join the discussion. He supports the idea of doing something to reduce principals for homeowners with underwater mortgages, but thinks the Mortgage Resolution Parners approach raises constitutional questions.
“In eminent domain law, you have to meet both state and federal constitutional requirements, and this is uncharted territory,” Dana said.